I just installed python2.4 and used it to install a set of scripts I had previously been using distutils with. It worked fine, and replaced the first line with:
#!/usr/local/bin/python2.4 distutils should replace that first line with the location of the binary used to run setup.py. Are you running setup with the following command line? python setup.py install -- http://mail.python.org/mailman/listinfo/python-list